Model for airport fees may increase passenger fares

The higher costs could kick in soon at 13 major airports including Chennai

Airports earn income from non-aeronautical side which includes food and beverages, and advertising. File Photo: Paul Noronha

The civil aviation policy's adoption of a hybrid-till model for calculating airport fees could push up airfares, by raising airport charges for airlines instead of bringing them down as per the policy's stated objective.

The higher costs could kick in soon at 13 major airports including Chennai and Kolkata, where tariffs are due for review this year.

While the draft policy released in October last year had stated that the hybrid-till model will be followed for “all future airports,” the final policy, released last week, states that “future tariffs at all airports will be calculated on a ‘hybrid-till’ basis.” Airport costs constitute 10-14 per cent of an airline’s operational costs.

Single-till model

The hybrid-till model, under which 30 per cent of airport operator’s non-aeronautical revenues would be used to subsidise airport costs, is in contrast with stance taken by the Airports Economic Regulatory Authority (AERA), a tariff regulator set up by an Act of Parliament in 2009 for major airports across the country. AERA has adopted the single-till model for determining aeronautical tariffs that can be set by airports, wherein passengers and airlines are charged less.

“AERA has been in favour of the single-till model which is more consumer-oriented. It hasn’t changed its official view till date but the government feels there should be better prospects for airport developers,” said a senior government official, on conditions of anonymity.

Under the single-till model, both aeronautical and non-aeronautical revenues are taken into account to calculate passenger fee. Apart from its core operations, airports earn income from the non-aeronautical side which includes food and beverages, duty-free shops, advertising, car parking and hotels.

Revenue sharing

At present, private airports in Delhi and Mumbai operate under the hybrid-till model sharing 30 per cent of its non-aeronautical revenues to subsidise aeronautical costs. Now, major Airports Authority of India (AAI) airports will also have to follow the hybrid-till model when their tariffs are to be determined by the regulator later this year.

An AERA official said the move may marginally increase costs at 13 other major airports (with capacity of more than 15 lakh passengers) such as Ahmedabad, Calicut, Chennai, Hyderabad, Kolkata, among others. The tariff for 2016-2021 for these airports is to be determined over the next three-four months, officials said.

AERA officials said it was easier for the regulator to determine tariff on a single-till basis. “Identifying what is aeronautical and non-aeronautical activity will become a challenge. While the contracts at Delhi and Mumbai airports say cargo and ground-handling is non-aeronautical, our Act states these are aeronautical activities,” the official said.

Single-till model

Airlines prefer a single-till model as it reduces their charges and passenger fees. The move to switch to hybrid-till may revive private developer interest in running airports as the model increases their revenue.

Tony Tyler, Director General of the International Air Transport Association said that single-till “is the correct way to move forward in this area” and claimed even Finance Ministry was in favour of this model.

“The AERA (Airports Economic Regulatory Authority of India) is who should determine what sort of till should be used. Putting it into law and regulation through the civil aviation policy is the wrong approach,” Mr. Tyler had said.

But an aviation consultant said the civil aviation ministry has ensured that airport charges won’t rise too much. “There’s no worry about a tariff spike since NCAP 2016 clearly lays down that in years of high expenditure, the additional tariff thereof will be spread out over future years, so as to have a smooth tariff curve,” said Amber Dubey, partner and India head of aerospace and defence at KPMG.

“Under single-till, developers’ return remains the same even if non-aero was nil. This, in turn, will mean that airport will have to increase aeronautical charges. Thus, in long run single-till can lead to higher aero charges as compared to hybrid till,” said Satyan Nayar, secretary general at Association of Private Airport Operators.

Mr. Dubey felt that the move will bring clarity as the conflicting interpretations on the tariff front resulted in battles with AERA ultimately driving away investors.